Does Public Childcare boost Female Labour Force Participation? A Macro-Level Approach comparing Fixed Effect and Fixed Effect Individual Slope Models for Germany 2007-2017

Abstract

The expansion of public childcare and increases in female labor force participation (FLP) are major developments in European societies. Though studies, in general, suggest the existence of effects of childcare on FLP, the results are very heterogeneous across different studies. This heterogeneity may well be driven by the lack of accounting for heterogeneous time trends and regional differences. Based on a fully balanced panel of German counties from 2007 to 2017, the effects of an increase in overall and full-time childcare places for children aged 0-2 and 3-5 on FLP are estimated. We add novel empirical insights by using fixed effect (FE) and fixed effect individual slope models (FEIS) to control for selection on trends, and by differentiating across different regional types. In most cases, we find conventional FE models to be biased due to heterogeneous time trends. In West Germany, increases in overall and full-time childcare places for children aged 3-5 years foster FLP. For toddlers (0-2), we find no effect on FLP in West Germany once selection on trends is taken into account. When further differentiating by region type, we identify a strong impact of full-time care for the age group 0-2 on FLP in urban, agglomeration and rural counties, but not in metropolitan areas. Our results highlight how the returns in FLP to public childcare differ between regional contexts and provide evidence for catch-up processes in childcare enrollment and FLP for rural areas.